NABE Expects Moderate Real Economic Growth and Higher Price Inflation

The National Association for Business Economics forecasts 2.6% growth in U.S. real economic activity in 2016, which was little-revised from 2.7% expected in October. Expected growth of 2.4% this year also was changed from 2.5%. The gains follow a 2.4% rise in 2014 and 1.5% in 2013. Quarterly GDP growth is expected to range between 2.5% and 2.7%. Forecasted growth in personal consumption expenditures was nudged higher to 3.0% next year following a 3.2 % rise this year. These remain the strongest yearly gains since 2006. Growth expectations for business investment in equipment in 2016 eased to 4.9% from 5.0%. Expected growth in spending on nonresidential structures also was lessened to 4.0% following this year's slight decline. Real net exports are expected to deteriorate more than previously expected, producing a larger drag on U.S. GDP growth in 2016 as exports weaken. The rate of inventory investment should ease next year also by more-than-expected earlier after firming this year and last. Forecasted improvement next year in residential investment was raised slightly to 8.4%. It thus should continue to be the economy's strongest sector following an unchanged expectation for 8.4% growth this year.

Forecasts for housing starts were lowered slightly for growth to 1.26 million in 2016 following an unchanged expectation for 1.12 million starts this year. Expectations for light vehicle sales were raised to 17.3 million units next year, a fifteen year high, from a raised expectation of 17.3 million in 2015. Average monthly gains in payroll employment are expected to improve to 210,000, unchanged from the prior estimate. Expectations for the unemployment rate were lowered to an average 4.8% in 2016 following an unchanged forecast of 5.3% this year. Consumer price inflation is expected to average a slightly lessened 1.8%, the quickest rate of increase since 2011, after a little-changed forecast for a 0.2% rise this year. The core PCE price index should rise 1.7% next year, the quickest gain since 2012.

The forecasted 2.88% interest rate on 10-year Treasury notes at the end of next year follows 2.32% at the end of this year. Both figures were reduced slightly from earlier expectations. The Fed is expected to begin raising interest rates by next quarter, later than the earlier expectation. Corporate profits next year should rise an upwardly revised 5.0% following a raised forecast of 5.0% growth this year. The Federal government budget deficit is expected to be $450 billion in 2016, a lower figure versus the earlier expectation and roughly one-third its $1.4 trillion peak in 2009.

The figures from the latest NABE report can be found in Haver's SURVEYS database.